Bitcoin's Prices And Energy Consumption Are Declining
- Dec 1, 2018 12:15 am GMT
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Bitcoin is in a slump. And that’s good news for its energy consumption.
The cryptocurrency is down by nearly 70% since the start of this year and its energy consumption has declined. Ordinarily the gyrations of currency markets have little direct effect on energy consumption (discounting, of course, for the effect of exchange rates on energy prices). In this case, however, bitcoin’s declining prices have meant that miners no longer find it profitable to mine the cryptocurrency by solving cryptographic puzzles. To cut back their losses, miners are shutting down their energy-intensive mining machines, which some estimate consume as much energy as the country of Ireland. The result is a steep vertical drop in bitcoin mining’s energy usage statistics (see image).
On Sunday, Nov 18, the price for bitcoin was $5553.01 and its estimated annual energy consumption was 73.12 Twh per Digiconomist, a site that estimates energy usage in bitcoin mining. In eight days, on Nov. 26, its price had dropped to $3640.56. Digiconomist estimated its annual energy consumption at 52.72 Twh that day.
The drop in energy consumption is a result of bitcoin miners shutting down their machines or ceasing operations altogether. According to online publication Coindesk, between 600,000 and 800,000 bitcoin miners have shut down since mid-November. The hash rate or the computing power engaged in mining bitcoin has dropped from 47 million terahash per second on Nov. 20 to 41 million terahash per second on Nov. 24.
To be sure, some doubt these estimates of bitcoin’s energy usage. That said, it is generally agreed that bitcoin mining, as a process, does consume tremendous amount of power. This is primarily because the cryptocurrency is a reward for solving complex cryptographic puzzles through sheer brute force. Thus, the more the computing power assigned to solving the problem the greater the chances for arriving at an approximate solution. The bitcoin reward is halved after a fixed interval of blocks. That halving may translate into less energy consumption in the future, some say. .
“Reducing the reward for mining is the only way to reduce overall network power consumption and may have an impact on further consolidation,” said Scott Clavenna, chairman of Greentech Media at Wood Mackenzie Power & Renewables.
But a reduction in reward may not necessarily mean a reduction in energy consumption since the puzzle’s difficulty varies and is reconfigured every two weeks. Demand for bitcoin is also expected to grow in the future. As it has evolved, bitcoin has primarily become an instrument for speculation. Institutional investors, including the likes of Goldman Sachs and ICE - NYSE owner, are investing and developing products for trading bitcoin. When these products come to market, there is a high probability that bitcoin’s price will rise again. Whether it results in a corresponding increase in energy consumption figures for mining remains to be seen.
It might be wiser instead to lay hope in consolidation of the mining industry and technological innovation to reduce power consumption. While it started off as an instrument for decentralized money production, bitcoin’s mining power is primarily concentrated in the hands of large mining firms, most of them Chinese, who bring economies of scale to the process. In recent times, they have expanded their operational footprint to renewable energy-friendly geographies with cheap power supply. Technology titans are also applying their smarts to the problem. Intel was awarded a patent this week for a bitcoin mining chip that reduces power consumption by 15 percent.